Regulator to look at KPMG audit of collapsed HBOS

MARTIN FLANAGAN

Britain’s accounting standards watchdog may conduct a full inquiry into accountancy giant KPMG’s audit of HBOS’s books in the run-up to the bank’s near-collapse in the 2008-9 financial crisis.

The Financial Reporting Council (FRC) is to hold a “preliminary investigation” into whether KPMG properly considered whether HBOS was a going concern in its 2007 accounts.

The lender, brought low by profligate commercial property lending and the freeze-up of the wholesale money markets in the crash, had to be rescued by rival Lloyds, which subsequently got a £20 billion lifeline from the taxpayer.

The FRC said yesterday that it had asked its executive counsel to do the preliminary inquiries on the extent to which KPMG “considered whether there were material uncertainties about the entity’s ability to continue as a going concern that HBOS needed to disclose in the financial statements”.

Andrew Tyrie MP, chairman of the Treasury select committee, said the probe was welcome but overdue. “This is not before time. A great deal depends on the quality of audited accounts. They were found wanting during the financial crisis.” Tyrie said.

“It is essential that everybody fully understands why. That is why this investigation is so important. The committee will be keeping a close eye on it.”

Simon Walker, director general of the Institute of Directors, said yesterday the failure of HBOS, which included Bank of Scotland and Halifax, “was one of the bleakest events in Britain’s corporate history”.

Walker said: “Shareholders and customers deserve to know what role the firm’s auditors, KPMG, played in this scandal. The announcement of this long-overdue inquiry, therefore, is better late than never.

“It is absolutely right that the FRC will look hard at HBOS’s financial statements and at the appropriateness of the ‘going concern’ statement offered by the bank in 2007.”

The FRC’s decision comes after a long-awaited review of the HBOS saga by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) was published in November.

That review put the blame firmly on HBOS executives, including former chief executives James Crosby and Andy Hornby and chairman Lord Stevenson, saying they were “ultimately responsible’” for the bank’s failure.

KPMG said yesterday: “We were pleased that the PRA and FCA’s report issued last November recognised that KPMG provided a robust challenge and delivered clear warnings to HBOS and that this resulted in a more prudent approach to provisioning than would otherwise have been adopted. In the interests of everyone, it is now important that final conclusions are reached in a timely fashion.”